Fool's Eye View

[ December 7, 2000 ]

Tracking Telematics

By Maynard Paton (TMFMayn)

Carburton Street, London -- Telematics is going to be big. Deutsche Bank suggests the worldwide industry will grow from $1b in 1998 to $42b by 2005. Growth investors, read on.

So what exactly is telematics? Essentially, it's the supply of information and services into motor vehicles through mobile communication. Systems to provide traffic information, journey navigation and vehicle tracking will all become commonplace in cars of the future.

Of course, when there's a huge business opportunity, there's many a company attempting to get a piece of the growth action. So, where can ordinary investors put their money in the hope of profiting from the rapid acceleration of telematics? Here are the main quoted contenders, with a quick rundown of their businesses.

Telematic hopefuls

Company                  Share Price     Market Cap
                             (p)             (£m)

Trafficmaster                400             500
Minorplanet                  469             291
ITIS                         134             131
Yeoman                       520              60
Toad                          33              23
Eagle Eye Telematics          85               7

Trafficmaster (LSE: TFC) is the pre-eminent operator in the UK telematic field at present. The company's core activity is that of supplying traffic information using a network of fixed sensors dotted along all major UK roads. The group has expanded into Europe over the last year, building similar sensor networks in Germany, France and Italy, although this expenditure has depressed recent profitability. Trafficmaster has also developed devices that locate stolen vehicles and provide commercial fleet management information. In fact, for a full review of Trafficmaster's business and prospects, you may wish to read this interview with the company's Finance Director, Bill McIntosh.

Minorplanet (LSE: MPS) is primarily involved in fleet management information, where businesses with large fleets can install Minorplanet's Data Collection Units and then remotely monitor the vehicle. Using Minorplanet's software, fleet managers can then improve the efficiency of driver (eg: ensuring no unnecessary stops or diversions are taken) and make certain the vehicle remains in correct working order (eg: monitoring cold storage temperature). Minorplanet announced last month it had broken into profit during its latest full year and Digger5, in this great post, outlines further background information on the company.

ITIS Holdings (LSE: ITH) floated in October and, like Trafficmaster and Minorplanet, has devised a gadget for vehicle tracking. However, the group's main investment attraction is the development of a traffic monitoring system, based upon Floating Car Data technology. ITIS' plan is to aggregate the location details of all its and Minorplanet's customers to build a picture of overall traffic movements. However, the big question for ITIS, especially when the company is subsidising its own product, is -- how many vehicles do you need to monitor to get an accurate picture of general traffic conditions?

Yeoman Group (LSE: YGP) is in the process of developing a mobile navigation system, the group basing its device on a "world-leading geospatial database technology". Yeoman appears to differ from the typical navigation system supplier by using its own software to generate the computerised land information, information that Yeoman also supplies to third parties. Yeoman gave potential investors further news today with its full-year results, a statement which included an agreement with ITIS concerning voice navigation facilities.

Toad (LSE: TOA) has historically been a supplier of car security and audio products. However, a recent statement signalled the company's intention to join the telematics bandwagon. The company recently appointed former Tracker Network boss Stephen Wheatley ("a leading expert in the telematic market") as Chief Executive and a "branded service" is on the cards for next year. GillW has been in active contact with the Toad directors and has conveyed the boardroom thoughts in this post and this post.

Finally, details are thin on the ground for microcap Eagle Eye Telematics (LSE: EIT), but it appears the group has (now almost commonplace!) fleet management, vehicle tracking and navigation systems in production.

Investors' way forward

Apart from being involved in various telematic products, the above companies have two other things in common. All have little in the way of profit, but dispense plenty in the way of upbeat expectations and promises. Given the combination of the two, those with a liking for value in their investments need not apply.

However, if you can stomach the toppy valuations, what's the way ahead for the prospective telematic investor? There are two options. If you've got plenty of time and an understanding of the latest technology, then researching each individual company could sift out the telematic Ebay (Nasdaq: EBAY) from the industry QXL Ricardo (LSE: QXL).

However, the trouble with going down the individual stockpicking route is that, as with most hi-tech industries, it's ripe with danger. For starters, technically the best product may not ultimately convert into the best investment, as any long-term Apple Computer (Nasdaq: AAPL) investor will know. Of course, that assumes you're in a position to evaluate the myriad of telematic products on offer in the first place. Then there's the valuation danger. If the unexpected happens (as it tends to do within hi-tech sectors) and profit disappointments come to light, your individual investment will be in tatters.

Telematic tracker

Far better, in my opinion, would be to take a passive approach. Just like an index tracker will consistently beat most investors' stock picking, so spreading your money across all of the telematic aspirants ought to prove a better bet. The "telematic tracker" theory is that, hopefully, one of the companies will prove to be a fantastic long-term winner and offset the inevitable failures you'll have also bought. If telematics takes off as the pundits are suggesting, then surely there's going to be one long-term investment success story contained in this feature.

The obvious benefit to any passive approach is that there's no time spent on complicated and time-consuming research. Simply buy into every company exposed to telematics and tuck the shares away in your bottom drawer. And remember, it's a passive strategy. Keep all of the shares in your portfolio, regardless of what happens. Why? Because the failures will constantly remind you how difficult it is to pick individual winners in any high tech, high growth and highly uncertain industry of tomorrow.

Where Next?

Start your telematic research here. Read the Foolish discussion boards for the informed opinions of fellow Fools, and then visit each company's website:

Trafficmaster discussion board | website
Minorplanet discussion board | website
Toad discussion board | website
Yeoman Group discussion board | website
ITIS Holdings website
Automobiles Sector discussion board
Growth Shares discussion board